9/11/2008 @ 12:08PM

A Cloud-Filled Debate

Cloud computing, the ubiquitous buzzword that’s often promised as the future of information technology, is becoming more and more like its name: an amorphous outline that everyone seems to interpret as a different animal.

To some, the idea of moving data resources and applications out of companies’ expensive server closets and into a centralized and networked location means a faster, more convenient way to access and store information–one that could save companies billions. To others, the same system sounds like a tangle of security, privacy and technical problems, painted over with a layer of marketing snake oil.

Michael Saylor is the pessimistic sort of cloud watcher. As chief executive of the business intelligence software firm Microstrategy, he’s familiar with the data infrastructure of hundreds of the world’s biggest companies ranging from
McDonalds
to
Target
to Visa. And for those massive firms, he says, the practical realities of cloud computing make it more of a consumer-focused gimmick than a technological revolution.

Nicholas Carr, the author of the cloud-computing focused bestselling book The Big Switch, admits that the hype around cloud computing has outpaced the technology itself. But Carr argues that real progress isn’t close behind: Eventually, the economic advantage of outsourcing information technology over the Internet will woo even the biggest companies, he predicts.

Forbes.com spoke with both Carr and Saylor about the practicalities of computing in the cloud, the security and privacy concerns raised by moving precious data to a faraway data center, and whether the excitement around cloud computing is due for deflating.

Michael Saylor

Forbes.com: Is cloud computing over-hyped?

Michael Saylor: Yes, it’s probably over-hyped. It’s being implied that there’s going to be a radical restructuring in the way corporate IT departments operate. Cloud computing has become a marketing moniker to divert IT budgets.

In fact, I don’t think we’ll see a revolution. We may see evolution slowly over the next decade. The biggest impact will be in consumer applications. That’s totally different from the idea that I’ll host my corporate database or applications in the cloud.

For big businesses, no one trusts their data to be somewhere else. There are a few exceptions, but in terms of legal liability, or just as a practical matter, you need to keep mission critical data to yourself.

Cloud computing is starting to work in the consumer world. Gmail, for instance, is incredibly successful. But as you move towards large organizations, you won’t see American Express or Citigroup take their bank and wire transfer records and put them onto someone else’s cloud. What if one of those records is the access code to $89 million sitting in an account? How do I know that’s not going to the wrong hands? And worse, what if your cloud goes down when I need that number? It could be disastrous.

Moving data to a central location could provide economies of scale: By outsourcing their information technology to someone who has many companies’ data resources clustered together, couldn’t companies save money and gain an advantage against competitors?

That sounds like vendor hype. The cloud is a great idea if you’re trying to conserve money. But if you’re managing $18 billion in inventory, your first consideration isn’t how you can shave a nickel off the price. It’s availability, security and functionality.

When it comes to software as a service, you can’t replace the applications of the global 2000. They’re too unique, they have years of inertia and they represent billions of dollars in investment. Even if you had the perfect application, a CEO will come along and say, “I don’t want the same application as my competitors. I won’t use some off-the-shelf software.”

How many companies want to run the same applications as American Express? Last I checked there were exactly zero companies with the same business model. If there are no other companies with the same application what economies of scale am I really getting?

Setting aside software as a service and looking at pure storage and processing, aren’t there big savings to be had from clustering servers together to host multiple companies?

Then it just comes down to issues like “Do I trust you? What are the consequences of failure? And do I want you to run my mission-critical app?” People still have their own proprietary phone equipment sitting inside their companies a hundred years after the technology was invented.

The very simple rejoinder to any thesis about cost is that governments will make it illegal. It’s already illegal to move some data out of the European Union to America. The German health care administration is simply not going to host its data in San Francisco, ever. We don’t buy sugar from Brazil. It’s not because sugar isn’t cheaper in other countries. It’s because there’s a law that makes it illegal.

There will be so many laws based on anything from competitive interests, to privacy, to defense concerns. How likely is it that the U.S. Air Force would host its data in Shanghai? If it were really all about money, we’d put all our data in China. But that’s not going to happen. Boeing is not going to keep its designs of its next generation engine in China, no matter what the price is.

So you think cloud computing will only work for consumers?

Just speculate for a moment on how much Visa or American Express spent on their database infrastructure. They’ve probably been working on it for 30 years at a billion a year. It’s responsible for hundreds of billions of dollars of transactions. I imagine each has spent more on it than any company that’s every pitched cloud computing.

As a practical matter, if they wanted to place that into someone else’s cluster of computers, the company that hosts it would have to spend billions on its own and hire 5,000 employees. You’re going to convince a Visa executive or an American Express or a Citigroup executive to pay for that for what reason?

When you talk to businesses like these, they’re not interested in some next generation of server cloud. They’re interested in how they can do what they’ve been doing better and avoid extraordinary catastrophic risk.

So you’ll see word processing in the cloud that allows you to avoid buying Microsoft Office. What you won’t see are American Express’s fraud detection systems hosted in the cloud any time in the next two decades.

Even if big businesses can’t make the switch to cloud computing, what aboutsmall companies with less investment in the old model? Wouldn’t they be interested in the savings that they get from building their data centers in the cloud?

I don’t see that. I think that’s hype too. If you want to upload your family photo album, that’s a brilliant idea. But what percentages of businesses–even small business–use Google for their spreadsheets or word processing today? Those are fairly straightforward, intellectually simple applications that have been around for 30 years. Ninety-nine percent of businesses are still running MS Office.

If I were a small trucking company running a dispatch network and I need five-second response time on the phone, even then I wouldn’t run my infrastructure on someone else’s architecture. If it goes down, my customers go away. If it’s really mission critical, you need to make people really comfortable–and that means 99.999% availability.

Small businesses may move to cloud computing, but it will happen very slowly.

For situations like small business or consumer applications where cloud computing seems more plausible, what kind of time line do you imagine for its adoption?

In a few situations, information technology will trickle towards cloud computing at some rate. What rate? It’ll be much slower than the technology visionaries want it to be.

Here we are, 10 years after these ideas have been out there, and private data centers are bigger than ever. Hardware budgets are bigger than ever. It’s like waiting for the paperless office that never arrived.

Nicholas Carr

Forbes.com: Is cloud computing over-hyped?

Nicholas Carr: At the moment, yes, and that’s typical for technological advances. This is a long-term trend–not a short-term one.

What’s your imagined time line of the adoption of cloud computing? Will it take years? Decades?

If you’re talking about big companies, I would say it will be a slow, steady process lasting maybe 15 to 20 years.

For consumers, cloud computing is here. Applications offered by Google and other software-as-a-service companies are already taking over traditional software. When young people want to do something, they don’t go out and buy software. They look to the Web.

For small businesses, it’s something in between. Because they don’t have as much investment in their current IT infrastructure, they’re more willing to consider hosting their entire business on something like Amazon’s Web Services.

In your book, The Big Switch, you draw an analogy between utilities like electricity and the future of computing, suggesting that IT will follow a similar utility model. But data isn’t the same as water or electricity. Can a business really let someone else host its private data?

As with previous technological revolutions, it will take time for laws and regulations to catch up to the technological advances. Imagine what people must have said when the idea of banks first arrived. “Who would ever allow an outsider to take possession of their money?”

In the meantime, security advances like encryption are making it easier to move and store data in a way that doesn’t violate anyone’s privacy.

Some, including Michael Saylor, point out that big businesses use applications that are too unique to be hosted by a shared service. Would there be any economies of scale from combining uniquely developed business applications with different requirements?

Cloud computing applications, so-called software-as-a-service apps, are shared by many users, each of which can customize certain variables to their own needs. But that’s not the whole of cloud computing. As we see with Amazon Web Services or Salesforce.com’s Force.com platform, it’s also possible to write and run custom apps on a cloud grid.

And, yes, there are huge economies of scale possible from tapping into a large utility data center–economies in hardware, labor, networking, real estate and so on. So companies that want custom apps can continue to write them; they just don’t have to buy servers, drives and all the other related equipment or employ the people necessary to keep it all running.

The idea of cloud computing has been around for nearly a decade. Critics say that even a simple implementation, like software-as-a-service, hasn’t quite caught on. Why do most companies still use Oracle and SAP, for instance, instead of Salesforce.com? What’s held cloud computing back so far?

Two things: the technology is still young, though it’s improving rapidly, and big companies are conservative. And the leading edge for cloud computing isn’t the big enterprise; it’s the consumer and the small business.

How does the cloud computing model cope with server downtime? Who’s liable when an application that’s critical to a business becomes unavailable?

These are issues that are resolved through contracts. Companies have always relied on outside suppliers–from transportation companies to component suppliers to communication companies–to provide services essential to their operations. This is nothing new.

In fact, in terms of downtime, I would think that companies would feel better about having their resources run by a company like Google or Amazon that specializes in maintaining a data center and is probably much better at it than the average business, which is focused elsewhere.

On what Gartner Research analysts call “the cycle of hype and gloom,” where do you think cloud computing is currently positioned?

It’s definitely near the peak of its hype. The doom period, when the media and IT managers realize the challenges ahead, is likely coming soon. But regardless of hype or gloom, the technology will only keep progressing.